BC H YDRO B-3 BChydro E XHIBIT T RANSMISSION S ERVICE R ATES Joanna Sofield Chief Regulatory Officer Phone: (604) 623-4046 Fax: (604) 623-4407 regulatory.group@bchydro.com March 14, 2008 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Sixth Floor - 900 Howe Street Vancouver, BC V6Z 2N3 Dear Ms. Hamilton: RE: Project No. 3698503 British Columbia Utilities Commission (BCUC) British Columbia Hydro and Power Authority (BC Hydro) Transmission Service Rates Application Attached as Exhibit B-3 is a copy of BC Hydro's presentation from the Workshop held on March 13, 2008. For further information please contact the undersigned. Yours sincerely, Joanna Sofield Chief Regulatory Officer Enclosure Be Hydro 2007 Rate Design Application Intervenors c. British Columbia Hydro and Power Authority, 333 Dunsmuir Street, Vancouver BC V6B 5R3 www.bchydro.com
Transmission Service Rate (TSR) Re-pricing Application Workshop March 13, 2008
Agenda BC Hydro application dated February 22, 2008 to amend the energy charges of transmission service rates: RS 1823; RS 1825; RS 1880; RS 1890. • Overview of Application • Introduction and Approvals Sought • Regulatory Process and Timetable • Stepped Rate Background • RS 1823 Rate changes • RS 1823 Revenue Implications • RS 1825 Rate changes • RS 1880 Rate changes • RS 1890 Rate changes • Overview of F2007 TSR Annual Report TSR Re-pricing Application 2
Introduction • Energy charges for transmission service rates are based (in part) on the long-term cost of new supply, and indexed to the RS 1823 Tier 2 Rate. • Existing RS 1823 Tier 2 Rate of $54/MWh is based on the weighted-average plant-gate price from F2003 province-wide Green Power Generation Call. • Proposed RS 1823 Tier 2 Rate of $73.60/MWh is based on the levelized, weighted-average plant-gate price from F2006 Call for Tender (F2006 CFT). • F2006 CFT provides the most recent and appropriate indication of BC Hydro’s long-term cost of new supply. • Re-pricing proposal is consistent with design principles of transmission service rates (including retail access) and the 2005 Negotiated Settlement Agreement (2005 TSR NSA). TSR Re-pricing Application 3
Approvals Sought 1. Amend energy charges of transmission service rates (RS 1823; RS 1825; RS 1880; RS 1890) effective April 1, 2008 on an interim basis. 2. Obtain relief for the forecast revenue shortfall that is incidental to the Re-pricing of the RS 1823 Tier 1 and Tier 2 Rates. • The rate relief/regulatory asset will not be necessary if the approval for the new RS 1823 Tier 1 and 2 Rates is received from the BCUC prior to the filing of the evidentiary update for the F09/F10 RRA. 3. After review of application, final Order to be issued setting Tier 2 Rate, but allowing for interim Tier 1 Rate pending resolution of the F09/F10 RRA. TSR Re-pricing Application 4
Regulatory Process RIB Rate/ TSR Re-Pricing F09/F10 RRA (Orders No.G-31-08 and (Order No.G-21-08) G-29-08) Workshop March 6 March 13 BCUC IRs March 12 March 18 Intervenor March 20 March 20 Registration Intervenor IRs March 25 March 25 BC Hydro April 23 April 18 Responses Procedural April 28 April 28 Conference TSR Re-pricing Application 5
Transmission Rates Summary TSR Re-pricing Application 6
Background – New Transmission Rates • November 25, 2002 … BC Energy Plan • October 17, 2003 … BCUC Report and Recommendations on Heritage Contract and Stepped Rates • April 1, 2004 … Government Special Direction No. HC2 TSR Re-pricing Application 7
Background – Stepped Rate Design Principles • RS 1823 is a two-step conservation rate which separates the pricing of annual energy consumption relative to the historic customer baseline load (CBL) • Tier 2 Rate based on the long-run opportunity cost of new energy supply • Tier 1 Rate calculated residually to recover the balance of the cost of service relative to RS1827 (revenue neutral) • Intent of Tier 2 Rate is to send a price signal that acts as a financial incentive to encourage conservation, efficiency and incremental self-generation • Premise is that customers will pay less for energy if they use less … and pay more if they use more … relative to CBL • Strike a balance between providing incentives to conserve and imposing hardship for growth/expansion • Allow open access to the transmission system so that customers can choose to purchase electricity from alternate third-party providers TSR Re-pricing Application 8
Background - Stepped Rate Design RS 1827 (flat rate) RS 1823 (stepped rate) 8 Tier 2 Energy = 10% 8 $54.00/MWh 6 6 = Tier 1 Energy = 90% 4 4 $27.70/MWh $24.77/MWh 2 2 100 GWh 10 90 0 0 100% x RS1827 = 90% x Tier 1 + 10% x Tier 2 RS 1827 = RS 1823 (at CBL consumption) Initial Customer Baseline Load (CBL) based on calendar 2005 energy purchases TSR Re-pricing Application 9
Background – RS 1823 Tier 2 Rate • BC Hydro’s March 2005 Transmission Service Rate Application (2005 TSR Application) was resolved by way of a Negotiated Settlement Process. • The Tier 2 Rate of $54/MWh was set based on the weighted-average plant gate price of energy contracts from the F2003 Green Power Generation Call. • BC Hydro proposed that the Tier 2 Rate would be set at $54/MWh until the results of the next province-wide CFT for energy were available. • As part of the Negotiated Settlement Agreement (2005 TSR NSA), participants agreed that: “To strike a balance between the participant’s respective positions, it is agreed that the earliest date the Tier 2 price will be adjusted is April 1, 2008 at which time it will be reset to reflect the most appropriate CFT price.” TSR Re-pricing Application 10
Rationale – Proposed RS 1823 Tier 2 Rate • F2006 CFT provides the most recent and appropriate indication of the long-term cost of new supply. • Existing RS 1823 Tier 2 Rate of $54/MWh based on the weighted-average plant-gate price (in nominal dollars) from F2003 province-wide Green Power Generation call. • Proposed RS 1823 Tier 2 Rate of $73.60/MWh based on the levelized, weighted- average plant-gate price from F2006 CFT. • “Plant-gate” reflects exclusion of electricity delivery costs • “Levelized” reflects cost of new supply over a variety of contract terms • Levelized, weighted-average plant-gate price calculation: > Total plant-gate cost of contracted energy per year = $525M > Total contracted energy volume per year = 7,125 GWh > Weighted-average price = $525M / 7,125 GWh = $73.60/MWh TSR Re-pricing Application 11
Rationale – Proposed RS 1823 Tier 1 Rate • Changes to the RS 1823 Tier 2 Rate drive consequential changes to the RS 1823 Tier 1 Rate: > Tier 1 Rate = [(RS 1827 Rate – 0.1 * Tier 2 Rate)/0.9] • Revenue requirement and rate rebalancing changes drive consequential changes to RS 1827: > Current RS 1827 Rate = $27.70/MWh > Proposed F2009 revenue requirement rate increase = 6.56% > Proposed rate rebalancing (suspend effects) = 0% • Illustrative view of proposed RS 1823 re-pricing for F2009: > Tier 2 Rate = $73.60/MWh > RS 1827 Rate = $27.70/MWh x 1.0656 = $29.52/MWh > Tier 1 Rate = [($29.52 – 0.1 * $73.60)/0.9] = $24.62/MWh TSR Re-pricing Application 12
RS 1823 Energy Charges – Illustrative* $ 73.60/MWh $ 73.60/MWh $ 24.62/MWh $ 24.62/MWh $54.00/MWh $24.77/MWh RS1827 Rate = $27.70/MWh RS1827 Rate = $29.52/MWh * This illustration reflects a Tier 2 Rate of $73.60/MWh, an interim F2009 revenue requirement rate increase of 6.56%, and no rate rebalancing. The rate increase is applied first to the RS1827 Rate. With the Tier 2 Rate fixed, the Tier 1 Rate is calculated residually to achieve revenue neutrality with RS 1827 at CBL consumption. TSR Re-pricing Application 13
Revenue Implications – Revenue Neutrality • RS 1823 designed to be “revenue neutral” with RS 1827 at customer’s CBL consumption • Revenue neutrality = customer load precisely matches customer CBL • Revenue neutrality = bill neutrality at customer CBL consumption TSR Re-pricing Application 14
Revenue Implications of RS 1823 Re-Pricing • Forecast revenue shortfall arises solely from proposed RS 1823 price changes • Forecast load / Tier 1 and Tier 2 energy price mix is the same • Tier 2 revenue increase does not offset the Tier 1 revenue decrease TSR Re-pricing Application 15
RS 1825 (Time of Use Rate) • RS 1825 was approved by the BCUC at the same time as RS 1823 • Changes to the RS 1823 Tier 2 Rate drive changes to RS 1825 • RS 1825 Tier 2 rates on an annual weighted basis are equal to the RS 1823 Tier 2 Rate TSR Re-pricing Application 16
RS 1880 (Standby and Maintenance Supply) • RS 1880 is a non-firm service for transmission customers with self-generation who may be required to take energy from BC Hydro on an ad hoc basis to make up for reduced self-generation when all or part of their generating plant is curtailed. • The rate charged for energy taken under RS 1880 (during High Load Hours) is equal to the RS 1823 Tier 2 Rate TSR Re-pricing Application 17
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